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The View from the House on the Edge of the Fiscal Cliff

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Posted 12-07-2012 at 01:54 PM by Roy Sanborn
Updated 12-07-2012 at 02:32 PM by Roy Sanborn

The residential home inventory in the twelve communities covered in this Lakes Region market report dropped to 1,023 listings as of December 1, down from 1,120 in November and 1,168 as of December 1, 2011. This inventory level represents a 13 month supply of homes on the market which is the lowest we've seen in a long, long time. Maybe, there really is a Santa Claus.

I think we all can clearly remember the housing bubble and that it burst. It wasn’t all that long ago and the economy has been struggling since. I get visions of children playing with little colored bottles of soapy water, their arms and hands flailing plastic wands about to create showers of shiny bubbles that pop in the wind. The bubble burst and so did the dreams of a lot of homeowners who lost over 30% of the value that they had in the biggest asset they owned.

Now we have another crisis looming on the horizon called the fiscal cliff. Politicians are arguing over the deficit and how to fix it. Some point out that the wealthy need to pay more taxes because they aren’t paying their fair share. Some say that loopholes in the tax code need to be closed to raise additional revenue. Others say we need to cut spending and reduce entitlements. All I know is that the housing market is beginning to slowly recover, but it still needs some tender care or it will surely falter. It is one of the main cogs in our economy’s engine. Now, just as we have begun to see some improvement, it seems like the housing sector is about to be pushed over the fiscal cliff along with grandma, the kids, and your dog Bowzer.

As I look around the Lakes Region I see a lot of very expensive lakefront property, not to mention a lot of fantastic view property. These properties are in large part owned by people from outside the area who purchase these homes so that they can come here and enjoy our lakes, mountains, restaurants, and recreational amenities. They spend a lot of money to purchase a home and maintain it. They also pay some pretty hefty property taxes. For example waterfront property owners in Gilford pay almost a third of all the taxes collected in the whole town. I bet if you factor in all the second homes, they would be paying over half...

If it were not for residential waterfront and vacation home sales in the Lakes Region, our real estate market would be, well, underwater. Of the 1,569 sales so far this year in Belknap and Carroll County 316 were waterfront properties. Those sales represented $206 million in sales out of a total of $438 million. That means 21% of the sales equaled 47% of the dollar volume. If you factor in hundreds of water access and view properties that are largely used as vacation or second homes the numbers become even more pronounced. Home sales are a vital part of our local economy and we depend on people from outside of the area to pick up the bulk of our high dollar sales. It’s a fact of life here as well as any vacation area anywhere in the country.

Every time a home is sold money exchanges hands by a number of parties and the wheels of commerce start moving. A home inspector gets a job, a water test gets done in a lab, a septic tank gets inspected, an appraiser gets a job, a title company or lawyer gets a fee, a loan officer gets a commission, a REALTOR® gets a paycheck, an insurance policy gets bought, a closing gift gets purchased, a moving truck or company is hired, a new satellite dish gets installed, a new refrigerator is bought, new carpets are ordered, we need a new couch and maybe some end tables, that storm door needs to be replaced, crap…we need some new curtain rods, let’s put on a new deck, we have to service the oil burner, or we need someone to plow the yard, mow the lawn, or paint the house. Lots of money starts moving about. These things can happen every time a home is purchased no matter how little or how much the home costs. But it will happen a lot less if it becomes too costly or difficult or expensive for those damned wealthy people to own property.

Will the new 3.8% surtax on "investment income" (which includes second homes) enacted to pay for Obamacare affect home sales in the Lakes Region? It could for those whose adjusted gross income is more than $200,000 (or $250,000 for joint-filers). Could it be that increased taxes in general might just mean there may be less to invest in real estate altogether? There’s also talk about getting rid of the mortgage interest deduction. They say that wealthy people don’t need that. Do you? It may be that those wealthy people don’t need that deduction but they also don’t need to buy a second home in the Lakes Region or anywhere else for that matter. Maybe someone ought to consider what happens if they don’t. It might just be that your property and mine will be worth a whole lot less…again.

Data compiled as of 12/1/12 using the Northern New England Real Estate MLS System.

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